S&P lowered local currency rating from 'BBB+' to 'BBB'
-Standard & Poor's lowered its long-term local currency sovereign rating to 'BBB' from 'BBB+', while the longterm foreign currency rating was affirmed at 'BBB+' and the outlook remained unchanged at 'negative'.
-The main rationale behind the downgrade was the intensified external pressure and diminishing economic policy options. Additionally, the exchange rate regime and lack of fiscal policy flexibility were also noted in the S&P press release.
-The negative outlook implies risks of a further downgrade in case of further deterioration of the external environment, tighter and more expensive access to financing and resulting pressures on the exchange rate and economic performance. Also, the lack of an adequate policy response implies increased risks of a further downgrade.
-In light of the current situation, the S&P move came as no big surprise and the stated rationale is a broadly expected and known story. While some negative market reaction could occur, we do not expect a significant movement. The rating outlook should remain dependent on the external environment, given the strong refinancing needs in 2009. To support that, a sound fiscal position is one of the prerequisites; hence, the budget rebalance should provide some answers.
